Macrovision to buy Gemstar-TV Guide; shares fall

DavidB. Wilkerson

CHICAGO (MarketWatch) -- Macrovision Corp., a maker of technology to protect against unauthorized copying of entertainment content, said Friday it would buy larger company Gemstar-TV Guide Inc. for $2.8 billion in cash and stock in a deal that has some investors worried about how the transaction will be financed.

Macrovision said the combined firm will be able to offer extensive libraries of commercial and personal protected content, to be accessible on numerous devices.

Gemstar-TV Guide shares fell nearly 17% and Macrovision
MVSN
shares tumbled 21% after Macrovision's chief financial officer revealed during a conference call that Macrovision will take on $800 million in new debt to finance the acquisition.

Gemstar-TV Guide shares fell 99 cents to close at $4.99, while Macrovision stock plummeted $5.55 to $20.44, touching a 52-week low of $18.60.

"We have received committed financing from J.P. Morgan and Merrill Lynch who have combined to underwrite a $650 million term loan and a $150 million Bridge facility," said Macrovision Chief Financial Officer James Budge, on the call. "The bridge will act as a backstop in the event the company is unable to secure alternative financing such as senior unsecured notes or convertible debt."

"Look, I recognize this is a complex transaction, no kidding," Amoroso said. "You've got a little company, you've got $800 million of debt, there are certainly questions, the debt markets haven't been the most robust and all of that. But you know what? We don't make decisions as a factor of what the immediate first-day market reaction is going to be ... I have a confidence and a high expectation that as we continue to work over the next few months on integration -- and beyond that after closing -- that this is going to be an enormous value for our stockholders."

Gemstar-TV Guide announced last July that it was reviewing strategic alternatives, including a possible sale. The publisher of TV Guide and provider of electronic TV listings has struggled in recent years. It launched a costly revamped, 8 1/2-by-11-inch version of TV Guide in 2005 after the venerable pocket-sized edition, which had peaked at 20 million subscribers in the early 1970s, had dropped to about 9 million by the early years of this decade. Generic electronic programming guides and Internet listings have given consumers numerous alternatives for finding their favorite TV programs.

Under terms of the agreement, each share of Gemstar-TV Guide
GMST
will be converted into the right to receive $6.35 in cash or 0.2548 of a share of common stock, in a new holding company that will own both Gemstar-TV Guide and Macrovision. The offer values Gemstar-TV Guide shares at a 6.2% premium to Thursday's $5.98 closing price.

Macrovision stockholders will continue to own one share in the new company for each share of Macrovision common stock owned as of the closing. The total cash consideration to Gemstar-TV Guide shareholders will not exceed about $1.55 billion.

Once the deal, which has been approved by both boards, is closed, Macrovision stockholders will own about 53% of the combined company, and the former Gemstar-TV Guide stockholders will own 47%.

News Corp.
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which holds a 41% stake in Gemstar-TV Guide, has agreed to vote its shares in favor of the buyout. News Corp. expects to close its acquisition of Dow Jones & Co.
DJ
the parent of MarketWatch, before the end of 2007.

The deal is expected to close by early in the second quarter of 2008, subject to conditions. Gemstar-TV Guide is larger than Macrovision, with a market capitalization of about $2.6 billion vs. Macrovision's market value of roughly $1.4 billion.

For example, consumers will be able to pull up a guide on their TV and receive personalized content and information regarding their favorite TV shows, read movie reviews before purchasing or renting a film, view personal photos, or tap into their music library, Macrovision said.

Upon the close of the transaction, Fred Amoroso will be the president and chief executive and James Budge, the chief financial officer of Macrovision, will serve as CFO of the combined company. The new board will be comprised of four members to be designated by Macrovision, and three members to be designated by Gemstar-TV Guide. Additionally, upon the close of this transaction, Gemstar-TV Guide CEO Rich Battista and CFO Bedi Singh will be leaving the organization.

J.P. Morgan served as financial adviser to Macrovision and UBS as financial adviser to Gemstar-TV Guide International on this deal.

David
B. Wilkerson

David B. Wilkerson is a reporter for MarketWatch in Chicago. Follow him on Twitter @dbwilkerson.

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